Fernway DiarySM

Jul 15, 2022

The venture capital market has cooled significantly worldwide after a record-setting year in 2021, but recent news from Sequoia shows that the funding outlook is more nuanced than reports of decreased valuations and tech industry layoffs may depict. At a time when many startups are rethinking their near-term strategy to adjust to the correction in the funding environment, Sequoia has signaled its commitment to robust global investment with the creation of new funds in India, Southeast Asia, and the US.

In June, Sequoia India and Southeast Asia launched two new funds: a $2 billion fund for early-stage, venture, and growth in India; and $850 million for Southeast Asia, the fifty-year-old venture firm’s first dedicated fund for that region. Previously, Sequoia had invested in Southeast Asian startups from a common India fund. Over the past 15 years, Sequoia India has committed more than $8 billion to India and Southeast Asia, including the newly raised money, and it last raised $1.35 billion for the region in 2020.

Sequoia has experienced considerable success in its Indian investments, with nine of its portfolio startups going public in the last 18 months, including Freshworks, Gojek, and Truecaller. According to an analysis, those public listings have given Sequoia India and Southeast Asia a return of nearly $4 billion in realized and unrealized gains at the current market value. Of the hundred-odd startups that have become unicorn in India, Sequoia is an investor in about three dozen.

Sequoia India and Southeast Asia is the most prolific investor in the region, with hundreds of portfolio startups. In addition to its venture and growth investments, Sequoia operates other targeted programs in the region, such as Surge, which backs very early-stage startups, and Spark, a fellowship and mentorship program for female entrepreneurs. Launched only three years ago, the Surge program includes 112 startups in over a dozen different sectors. The firm will continue to focus on sectors it has traditionally worked in, such as SaaS and fintech, but is also expected to expand its focus into newer areas such as web3.

More recently, Sequoia has worked on raising two new US-focused funds, which are expected to close in July. Together, the funds will total up to $2.25 billion, with a $1.5 billion growth fund focused on mature private companies and a $750 million fund for earlier-stage startups. Last year Sequoia Capital moved away from the typical 10-year fund model, creating an open-ended Sequoia Capital Fund that distributes money into close-ended sub-funds, such as the two new funds being created.

While the news of these funds may be a good sign for the long-term health of the venture capital market, startups should not take it as a signal that the free-spending days of 2021 will be returning soon. Sequoia recently advised its founders to bring more discipline and focus to their operations to ride out the recent downturn, and to be aware that their chances of successfully raising a new round of funding in the next 6 to 12 months were low.

Sequoia’s pattern of investment in the first half of the year is an example of how optimism and caution can go hand in hand. While its pace of investments made is up compared to 2021—90 deals made in the first half of 2022, compared to 84 in the same period in 2021—the total amount of money it invested is down, according to Crunchbase. Its total rounds in the first half of 2021 were worth $14.1 billion, while this year’s only came to $9 billion.

Thus, while new fund creation is a positive indication for better days ahead in the venture capital market, startups should continue to take a conservative approach to spending and exercise care in sound business planning and corporate governance. Fernway Solutions offers a full range of advisory, corporate structuring, tax planning, compliance, and accounting services to ensure your startup has what it needs at each stage of its growth.

For more information, please contact your US tax advisory team at youradvisor@fernwaysolutions.com or visit us at www.fernwaysolutions.com.

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